"The ignorant mind, with its infinite afflictions, passions, and evils, is rooted in the three poisons. Greed, anger, and delusion." ~ Bodhidharma
We certainly have observed a wide range of emotions in financial markets over the past several months and we have analyzed them at length here at TFP. Today, we will not necessarily analyze emotion but the delusion of making attempts to accurately recognize emotion as it occurs, and thereby making the mistake of investing according to this delusion...
It seems the currently favored pastime in the world of financial news punditry is "bottom calling." There are two primary camps in this prediction game: Those who say we are at (or near) a bottom for broad market stock prices and, as you would expect, those who say we are not at a bottom and prices will fall farther...
"Until a man has expressed his emotion, he does not yet know what emotion it is..." ~ R.G. Collingwood
What I find especially interesting to observe is not the foolishness of the bottom callers, but the foolishness of the non-bottom callers, if you will, who believe that they are being wise in saying we are not at a bottom. They appear quite confident and proud in their self-professed virtues of patience, experience and foresight. They believe that it is the bottom-callers who are acting as fools and it is they, the non-bottom callers, who are acting prudently.
The preferred basis for which the non-bottom callers refuse to call a bottom is their self-professed ability to recognize market sentiment (emotion) as it occurs, specifically in current market conditions, the absence of panic and capitulation -- the primary emotions present when stock market prices hit a cyclical bottom.
This is where the delusion takes place...
While it is historically evident that bear market bottoms have been marked by the emotions of panic and capitulation, the non-bottom-callers fail to realize that these emotions come in different shapes, sizes and forms in each unique market cycle. Put simply, it is widely known what will occur and what emotions will accompany the occurrence but it is virtually unknown how and when the emotions will appear. Furthermore, once the emotion occurs, it is already in the past; therefore, it is impossible to accurately "call a bottom" in real time, with the exception of happenstance.
"Those who have knowledge, don't predict. Those who predict, don't have knowledge." ~ Lau tzu
I've read this quote from Lau-tzu many times and have not fully applied its meaning or quite appreciated its profundity until now: There are those who are aware of their own ignorance and those who are not. Those who are aware of their own ignorance, do not predict. Those who predict, are not aware of their own ignorance..
To say that we are (or are not) at a market bottom, are both forms of prediction (and foolishness), which is precisely my point: While an investor may know that the next market bottom, if it has not already occurred, will be marked by panic and capitulation, that same investor will not be able to recognize the emotions as such until after they have come and gone.
Perhaps the lesson we may derive from this analysis of delusion is that we should not fool ourselves into believing that, just because we are taking the opposing side of an opinion we believe to be foolish, that our side must be the wise one. We should remember that it is quite possible that both sides of a prediction have equal potential to be incorrect and that we would be better off not taking either position but to be a passive observer.
Here are more examples of two-sided opinions where there are beliefs or ideas on both sides that may be equally as foolish as the other:
Can you think of others? If we simply admit (and submit) to the wisdom that there is much that we do not know, and be contented with the certainty of uncertainty, we may guide our decisions (or indecision) accordingly, and our lives will be the better for it... Related Posts:
Can you think of others?
If we simply admit (and submit) to the wisdom that there is much that we do not know, and be contented with the certainty of uncertainty, we may guide our decisions (or indecision) accordingly, and our lives will be the better for it...